Monthly Archives: February 2011

Coal India Ltd (CIL) is increasing its prices. But marking a departure from the past, the price increase has been done selectively with the concept of dual-pricing being rolled out for the first time.

The logic behind the exercise is to minimise the impact of the price increase, while also protecting CIL’s margins. The impact of the increase on the wholesale price index has been assessed at 0.17 per cent.

the price hike would effectively be a three-tiered one, with the impact on the power sector being 7 paise per kilowatt hour.

While the power utilities, independent power producers (IPPs), fertilizer and defence sectors are being exempted from a straight across-the-board increase, a 30 per cent hike will become effective for all other sectors whose products enjoy market-driven prices. The increase has been pegged with the floor-level of the spot e-auction prices of coal. “The floor of spot e-auction prices (now commanding an 80 per cent premium) is 30 per cent above present notified prices.”

the idea behind introducing this concept was to introduce a differential pricing-system for sectors whose product-prices are market-driven and another for sectors like fertilizer and power whose prices and are not market-driven.

ONGC may complete Tripura project by December (25/02/11)

ONGC’s first power venture in India , the 8,500-crore, 727-MW gas-based power plants in Tripura, is likely to be completed by December, a year before schedule.

n MoU signed between ONGC Tripura Power Company (OTPC), a unit of ONGC, and the Bangladesh government in November 2010 for moving very heavy equipment through Bangladesh waterways will help OTPC save a year. ONGC, which is setting up two gas-based power units each of 363.3 MW in Tripura, had earlier planned to complete the first by December 2011 and the second by December 2012.

The equipment and turbines will be carried through Ashuganj port on the Meghna river in Bangladesh, which would take seven to eight days. The equipment will then be sent via the connecting road network between Ashuganj-Sultanpur-Akhaura check post. The total transportation time for the equipment is estimated to be 15 days.

Economic Survey calls for major reforms in power sector (25/02/11)

The Survey tabled in Parliament pointed out that India currently has one of the lowest and most uneconomical average electricity tariffs in the world, 8 cents per unit at the retail level, compared to about 12-15 cents in countries endowed with more coal or gas and 19-10 cents per unit elsewhere.

Based on above stated data Survey today asked the states to reduce subsidies and cross-subsidies on electricity and hike tariffs.

It also suggested reducing the monopoly of state electricity boards (SEBs) in power distribution by encouraging open sales of the bulk of power supply in the market, which would increase competition.

It also pointed out that the T & D losses is about 35% which is among highest in world.

Reliance Power has emerged the frontrunner among six shortlisted entities for a tender floated by Uttar Pradesh Power Corporation Ltd (UPPCL) to buy 3,000 MW of power for 25 years starting 2014.

Reliance Power has offered to sell 2,456 MW of power at an average price of Rs 3.702 a unit. Although the tariff offered by the Anil Dhirubhai Ambani Group’s power utility is not the lowest, the quantity of power offered is the closest to the requirement of UPPCL. Only one company has quoted a lower price but it is offering only 10% of the power UPPCL wants to purchase.

Reliance Power’s Rosa plant which is one of its first greenfield project to become operational has now started generating at about 105% of its installed capacity

The two units of 300MW capacity (total=600 MW) each commissioned under phase 1 is now producing about 630 MW.

The company is setting up the 1,200 MW Rosa Power project n Uttar Pradesh. The first unit of 300 MW was commissioned in December 2009 followed by another unit of 300 MW. Both the units under phase of the project were commissioned ahead of their scheduled plan and were functioning at full capacity.

The Rosa project would sell the entire power produced by it to the UP government at cost plus tariff basis.

Power companies want extension of tax sops (23/02/11) –

Under section 80-I(A) of the Income Tax Act mega power generation projects, with over 1,000 megawatts (MW) in case of thermal and over 500 MW in hydro, are exempted from income tax for 10 years, if they are commissioned before March 2011.

Indian power sector expects the government to continue its thrust on infrastructure and pins its hopes on incentives for the renewable energy sector and extension of sunset clause under Income Tax Act in the federal budget for 2011-12 to be tabled in parliament on Feb 28.

Limited availability of coal could trip mega power plan (22/02/11)

An acute shortage of domestic coal is threatening to destabilize new power generation projects of about 15000 MW capacity in which developers have already invested an estimated Rs75,000 crore.

Coal India Limited had promised to supply 92 million tonnes (mt) of fuel to these projects, most of which were expected to be operational over the next one year. But the state-run firm now says it can deliver only 13mt. The available coal, which needs to be blended with imported coal before it is ready for use by generating companies, could produce barely 3,000 Mw of power. “Coal India has indicated that availability for power utilities is likely to be 319mt only. Of this, fuel supply agreements have already been signed for 306mt generating units commissioned up to March 31, 2009,” the official said.

The coal ministry official said CIL production would not improve unless the environment ministry clears the hurdles for mining projects. He said more than 150 mining projects of Coal India are awaiting clearance from the environment ministry. These projects have a coal production potential of 210mt.

Supply of coal by CIL to power utilities over the past few years has been falling short of requirement for the electricity generation targets. The utilities had reported a loss of 10.9 billion units in 2008-09, 14.5 billion units in 2009-10 and 5.3 billion units between April 2010 and December 2011.

DERC free to fix new power tariff: Dikshit (22/02/11)

In May last year, the city government had through a notification stalled DERC’s decision to announce the annual tariff for 2010-11 till it re-examines the demands from discoms to increase the rates.

The DERC , which was making last minute preparations to announce the new tariff, after receiving the government directive had indicated that it had planned to cut down the tariff by 20 to 25 per cent as discoms would have a surplus of around Rs 4,000 crore if the existing tariff was not changed.

The government’s notification was quashed by the court on Friday last describing the intervention “absolutely unjustified, unwarranted, untenable.”

Chennai : The 2011 edition of the biennial Wind Power India conference is slated to kick off on April 7, a senior functionary of the Wind Institute of Sustainable Energy (WISE) said today.

Various deliberations on the present wind power scenario and a methodology for taking the industry forward with international participation will be discussed during the three-day event, WISE Founder-Director General and Wind Power India 2011 Executive Co-Chairperson G M Pillai told reporters here.

Over 100 foreign delegates are expected to take part in the event, which has been designed to have more “panel discussions” on topics related to wind power.

Organising Committee Chairman V Subramanian said India had a huge potential for wind energy generation and aims to produce 64,000 MW by 2020, compared to 13,000 MW at present.

“There are many areas still untapped (in India) and the deliberations also include the critical issues and challenges related to the role of wind power…,” he said.

Stating that there have to be some changes on government policies, he said discussions with government officials would also centre on how they can be modified to encourage more private sector participation.

Presentation of the Wind India Awards, recognising contributions made by the Indian wind industry in 17 categories, is also being planned during the conference, he added.

Members of the Indian Wind Turbine Manufacturers” Association and Global Wind Energy Council will also participate in the conference, to be held at the Chennai Trade Centre.

The domestic demand-supply gap of coal may considerably widen in the medium-to-long term on the increased demand from power sector, according to a report by rating agency ICRA.

“The demand-supply gap in the domestic coal industry is likely to widen significantly over the medium to long term, largely because of the significant size of the coal-based power projects that are expected to be commissioned over this period,” it said.

Primarily driven by the rising demand from power sector, which consumes 70% of the country’s total fossil fuel requirement, coal demand grew by eight% between FY06 and FY10 to reach to around 600 million tonne.

On the other hand, coal production recorded around seven% growth during the period leading to demand-supply gap to widening further. India had produced just over 500 million tonne coal in 2009-10.

The shortfall is met through import, which is always a costly proposition. Again, the long-term supply could be a challenge going forward considering the increasing demand for coal from many emerging economies.

Sensing this, a clutch of Indian companies have started scouting for coal mines acquisitions abroad for their future needs. The list is endless and only likely to expand further in the coming days. Some have already succeeded as well.

Power generation through thermal power sector, which ICRA believes to continue to be the prime mover of coal demand in the country, has gone up to 90 Giga Watt (GW) at the end of November last year from 71 GW at the end of FY07. It is likely to increase further to 113 GW by FY12-end.

According to the Coal Ministry’s estimates, the widening demand-supply gap of the fossil fuel is likely to touch 142 million tonne next fiscal from projected 84 million tonne in the current fiscal.

Dharamshala : The Himachal Pradesh government would set up two hydro power engineering colleges in Shimla and Bilaspur districts to meet the growing requirement of engineers in the hydropower projects.

This was disclosed by Irrigation and Public Health minister Ravinder Singh Ravi while addressing at the annual function of Government Degree College at Dhaliara yesterday.

He said the twinhydropowerengineering college would be set up with the help of NHPC, SJVNL and NTPC.

These colleges would provide opportunities to youths of the state to shape their future within the state, he said.

He said in order to provide quality education to the students during the last three years ten universities in private sector and a technical university in government sector was established in the state.

Stressing upon the protection of the environment and water preservation, Mr Ravi said educational institutions had been involved in nine point campaign to reach common people through student community.

He said Rs 40 crore water supply scheme would provide drinking water in 96 villages in Jaswa-Pragpur areas in near future as these areas were suffering with water scarcity.

In a move to help quicken the flagging pace of distribution reforms in the power sector, the Union finance ministry has approved the creation of a Rs 50,000-crore National Electricity Fund – first mooted in the 2008-09 Budget – for attracting investment in this area.

The ministry has also agreed to provide an interest subsidy for lending under the fund.

With this go-ahead, the power ministry is set to seek Cabinet approval for the scheme, after inviting comments from different departments.

“The in-principle approval by the finance ministry for NEF, including the interest subsidy mechanism under it, has been received. We will circulate a Cabinet note next week, seeking comments from all the ministries concerned,” said power secretary P Uma Shankar.

He said the scheme could start with a smaller amount. “The size of the fund will be fixed at the level of the Cabinet. However, size is not so important. The scheme will attract investment in the distribution sector, which has not been taking place as desired,” he said.

The idea for creating such a fund was originally mooted to help the perennially bankrupt State Electricity Boards (SEBs) to improve their finances and reduce distribution losses. The money raised by the NEF was to be loaned to these boards at low rates of interest.

After the 2008-09 budget announcement for creation of an NEF, a committee headed by the Member (Power) in the Planning Commission, B K Chaturvedi, was set up to work out details.

The panel had suggested an interest subsidy mechanism wherein the Centre would bear a part of the interest cost of funds raised by a state utility for distribution projects.

Based on the panel’s recommendations, a note was circulated by the government in April last year, proposing an interest subsidy of Rs 18,438 crore (Rs 184.38 billion) over 14 years on loan disbursements of Rs 50,000 crore (Rs 500 billion).

The proposal had then gone to the Expenditure Finance Committee under the finance ministry.

“Any financial institution or bank that lends to distribution companies could be a part of the scheme. The interest subsidy to be provided by the Centre would depend on the size of loan. These loans will have a tenure of 14 years,” Uma Shankar said.

Another senior official from the ministry said an announcement relating to allocation for the long-awaited fund could be made in Budget 2011-12, to be presented the coming Monday.

In the last budget (2010-11), the power ministry had demanded an allocation of Rs 5,063 crore for an NEF, recasting the scheme to make it applicable to loans from the banking sector and other financial institutions for distribution projects, along with non-Accelerated Power Development and Reforms Programme projects.

However, an amount of only Rs 227 crore (Rs 2.27 billion) was finally allocated. The ministry was allocated Rs 60,751 crore (Rs 607.51 billion) for the current financial year as against a proposed annual plan outlay of Rs 64,551 crore (Rs 645.51 billion).

Electricity distribution was identified as the “weakest part” in the country’s power sector by the Planning Commission in its Mid-Term Appraisal last year, owing to heavy Aggregate Technical and Commercial (AT&C) losses.

The huge AT&C losses, which touched a record high of Rs 40,000 crore (Rs 400 billion) in 2009-10, ensured the disability of most SEBs to raise money or to do so only at very high rates of interest. The new fund will address this issue.

The distribution segment accounts for around 20 per cent of the overall annual investment of Rs 95,000 crore (Rs 950 billion) in India’s power sector.

Around 40 per cent of India’s overall annual power generation of 700 billion units is lost due to an inefficient transmission and distribution network.

The government is likely to give a breather to the power sector by extending the tax holiday for the sector by another year. The move will benefit power projects, including ultra mega ones (UMPPs) and transmission projects, that are slated to be awarded in the remaining period of the 11th Plan (2007-12).

This could be part of the Budget announcements on February 28.

The power sector currently gets tax break under Section 80-IA of the Income Tax Act. The sop ends on March 31, 2011 making projects which are awarded after the cut-off date ineligible for the benefit. Under the provisions of the section, power projects get deduction of up to 100% profit for any ten consecutive years out of the first fifteen years of commissioning of a project. Earlier, the benefit was to end on March 30, 2010 but government extended it by an year in the last Budget, enabling

projects awarded since then to be eligible for the benefit.

“Power sector could get an additional year to enjoy the benefits under Section 80 IA, which will also ensure that all projects awarded in the 11th Plan get similar tax breaks,” said a government official privy to the development.

The biggest beneficiary of the extension will be state-owned NTPC, while projects of companies such as Sterlite, Jindal Power, Lanco, GMR and other state utilities could also avail of the tax sops. In addition, few private sector transmission projects could also benefit from extension of Section 80 IA benefits.

“ Direct Tax Code is slated to become operational from fiscal 2012-13, which will discontinue all profit-linked tax incentives for infrastructure sector projects,” the official added.

The draft DTC Bill seeks to discontinue profit-based tax incentives and provides for an expenditure-based incentive (capital expenditure) scheme in relation to specific industries such

as infrastructure (roads, ports and airports), power sector and SEZ developers.

Though the companies enjoying tax incentives under any existing scheme would continue to get them for the unexpired period, projects awarded (and where developers have made some investment) after the cut-off date will be governed by provisions in the code. The proposed changes will help power projects in excess of 20,000 mw that is likely to be awarded in the 2011-12 fiscal. It will also benefit UMPPs, as the government expects that at least three such projects may be bid out in next fiscal.

“We have asked for tax holiday similar to the one that is available under 80 IA to be provided in the Direct Tax Code Bill, at least up to March 31, 2017 so that continuity is maintained and uncertainty is avoided,” said an official in the power ministry. The ministry in its pre-budget submission

before the finance ministry has also sought extension of this Section up to 2017 to give benefit to ultra mega power projects and transmission projects planned for Eleventh and Twelfth five year plan periods. “ The government should have a uniform policy of incentives till Direct Tax Code is implemented. This will remove uncertainties and help projects to get financial closure,’ said an industry expert. A thermal power projects requires an investment of close to Rs 5 crore for 1 mw of power. With country planning to add over 62,000 mw in 11th Plan and another 80,000-100,000 mw in the 12th Plan, tax holiday could act as catalyst to attract investment. India currently has a power generation capacity of 1,70,000 mw.

Even for the 11th Plan projects, the government has calculated huge shortage of funds to the tune of over Rs 4 lakh crore. This is expected to increase substantially

in the next plan period. In view of the situation, already several measures have been taken to augment funds for the sector and more are being explored to see that necessary investment comes in the sector.

Development of power sector is crucial for growth needs of the country as a deficit situation inhibits industrial activity. Already the country is facing over 12% peaking shortage that is considered unsustainable for a country that aspires to take up its GDP growth rate to double digit mark.

Dr Kirit Parikh chairman of the Planning Commission’s expert group on low carbon economy said that Indian industry can adopt clean energy options to reduce costs and increase competitiveness as the country moves toward economic development and mitigation of climate change.

The transition to a low carbon economy can drive sustainable growth while managing greenhouse gas emissions and addressing the risks of climate change, he said while speaking at a conference organised by The Associated Chambers of Commerce and Industry of India.

Primary sources of greenhouse gas emissions include the power sector, energy-intensive manufacturing sectors, transportation and buildings. Carbon abatement levers can be adopted in each of these sectors to enable a transition to a low carbon economy.

Dr Parikh said that 200 million to 300 million people will be added in urban areas over the next 20 years. India is short on all energy sources and thus needs to find alternatives, he said adding unsustainable consumption patterns of rich countries are largely responsible for global warming.

With rapid economic growth, India’s greenhouse gas emissions are set to increase from 1.7 billion tonnes of carbon dioxide equivalent in 2007 to 5.7 billion tonnes by 2030. The government aims at achieving 20 to 25% reduction in carbon intensity below 2005 levels by 2020.

Mr Deepak Gupta, secretary at the ministry of new and renewable energy, said nearly 40% of the population still does not have access to power. The consumption of diesel, kerosene and furnace oil must come down. Renewable energy is the only option.

Dr Pramod Deo chairperson at the Central Electricity Regulatory Commission said that more than half of power generation is based on coal-based technologies. Authorities have to determine the cost burden on consumers while adopting renewable sources of energy.

ASSOCHAM’s secretary general DS Rawat said the socio economic and technological benefits of adopting a low-carbon growth trajectory are undeniable. With climate summits at Copenhagen and Cancun capturing the attention of entire world, climate change is now a part of strategic discussions at top-most management levels across major corporations.

ET reported that Larsen & Toubro, Gammon-Ansaldo and other equipment makers, who hope to rival BHEL in India’s power equipment market, fear they would lose out heavily to Chinese rivals as private power firms are willing to place orders only with tough conditions that add costs to their supplies.

Industry officials said that private power firms such as TATA Power, Reliance Power, Patel Engineering, Visa Power and Moser Baer Projects are asking equipment suppliers to give an undertaking that their foreign technology suppliers will ensure proper functioning of the equipment after delivery.

Technology providers, mostly in Europe, US and Japan, are not reluctant to provide such assurances, certification particularly to developing countries like India, and they would give such an assurance, called joint deed of undertaking, only if they also get royalty payment, equipment makers say. This would make it uncompetitive against Chinese equipment.

Industry experts said private power firms are demanding such undertakings, following the trend set by state-run companies like NTPC, Damodar Valley Corporation and state generation companies.

Mr Ravi Uppal MD and CEO of L&T Power told the ET that “Deed of joint undertaking is a double-edged sword. On one side it protects interest of the customer. The flip side is that outside partner also has a major say in which jobs and which terms to participate.”

He said that “When local players have established their credentials this kind of thing should not be insisted upon. The undertaking is being asked from local Indian companies for a joint venture, which they form with technology suppliers. In case of Chinese companies this doesn’t apply. Suppliers charge a cost for making domestic suppliers uncompetitive.”

The problem is typical to private equipment companies’ dealing in supercritical technology while state-run monopoly Bharat Heavy Electricals Ltd said it was in a position to ask for an exemption from the liability clause.

The energy efficient, supercritical technology is a forte of players in China, Korea and Russia but a relatively new area for Indian manufacturers. Cost of initial supercritical units in the country as it is more due to higher import content and low volumes.

Private power producers feel that fixing responsibility of foreign collaborators is a logical move as power equipment market in India is at a nascent stage. They said most lending institutions also compel generating companies to ask for equipment guarantees.

An Ansaldo Caldaie India spokesperson said that “As a matter of fact no foreign technology leader is prepared to sign a deed of undertaking covering total equipment. Technology providers are willing to sign back-to-back liability clauses. But besides loading to cost for the risk coverage, it is one of the serious bottleneck in up bringing power sector with world class technology at the speed it is required to meet national expectations.”

M S Unnikrishnan MD of Thermax India said that NTPC historically had the principle of taking joint deed of undertaking from technology suppliers. “But it is unfair on private companies’ part to ask for it. We have been trying to negotiate with the private companies and inform them about our abilities.”

Steel Authority of India is at advanced level of talks with 2-3 Japanese and Korean firms to produce value-added CRGO and CRNO steel , having a total of over USD 2.5 billion market, entirely met through imports now.

The maharatna company would like to have a technological partner for the production of the two varieties. However, it is also open to the options of entering into a joint venture agreement with the prospective partner to produce the two, C S Verma, Chairman, SAIL said.

No Indian steel maker has the technology to produce CRGO steel, which is mainly used in power sector and CRNO, which finds application in the making of large dia pipes for oil and gas sectors, now.

Production of these value-added varieties would enable SAIL to increase its margin and help the consumers get them at a cheaper rate since they would no longer have to rely on imports to manufacture transformers and others within India.

Verma said that the current domestic market size for CRGO products would be USD 1.5-2 billion and the future growth is linked with the spurt in the power sector.

Similarly, CRNO’s rate of growth relies on the expansion of the oil and gas sector. Domestic CRNO market is currently pegged at less than USD one billion.

However, it is not just SAIL which is scouting for such partners for producing these kind of value-added products, many other domestic players are also looking for forging similar kind of tie-ups for making CRGO and CRNO steel, Verma said.

“If you look at the bottomline of Korean and Japanese firms, their profitability is higher than their Indian peers though they neither have coking coal nor iron ore deposits,” Verma said

“On the other hand, all Indian firms have access to iron ore, still Indian firms profitability is lower than Japanese and Korean firms. It’s because, value-added products are made very less in India compared to them,” he said.

SAIL produces a clutch of value-added products and is in the processing of bringing out “so many” such products. Out of its total 12.5 million tonnes production, the state-run firm produced 4.36 million tonnes of value-added steel.

Verma said SAIL targets to produce over 50 per cent of the total production as value-added steel by 2012-13 as its capacity goes up to 24.6 million tonnes. The share is further likely to go up to around 60 per cent as the company reaches to 60 million tonne capacity by 2020.

State-run Korea Electric Power Corp (KEPCO) said on Friday it would invest 8 trillion won ($7.18 billion) in its smart grid business by 2030 to cut carbon emissions and boost the efficiency of electricity facilities.

Of the total investment 400 billion won per year will be spent in the next five years, 2.3 trillion won through 2020 and the remainder through 2030 to upgrade power transmission and distribution systems and switch meters, the company said in a statement.

South Korea said in early 2010 that it aimed for spending of 27.5 trillion won over the next two decades on smart grids to make electricity distribution more efficient, reduce greenhouse gas emissions and save $26 billion in energy imports.

In a smart grid, computers and sensors installed at power plants, substations and along power lines signal control centers that better manage the flow of electricity.

KEPCO added the investment would help it lift the proportion of power nationwide drawn from renewable sources, including solar and wind power, to 11 percent, and to target overseas markets with related technology.

Shares of KEPCO rose 1.38 percent to 29,450 won as of 0140 GMT on Friday, outperforming the broader market.

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